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Passage 9 (9/63)

Most economists in the United States seem captivated by the spell of the free ma
rket. Consequently, nothing seems good or normal that does not accord with the r
equirements of the free market. A price that is determined by the seller or, for
that matter, established by anyone other than the aggregate of consumers seems
pernicious. Accordingly, it requires a major act of will to think of price-fixin
g (the determination of prices by the seller) as both normal and having a valuable
economic function. In fact, price-fixing is normal in all industrialized societ
ies because the industrial system itself provides, as an effortless consequence
of its own development, the price-fixing that it requires. Modern industrial pla
nning requires and rewards great size. Hence, a comparatively small number of la
rge firms will be competing for the same group of consumers. That each large fir
m will act with consideration of its own needs and thus avoid selling its produc
ts for more than its competitors charge is commonly recognized by advocates of f
ree-market economic theories. But each large firm will also act with full consid
eration of the needs that it has in common with the other large firms competing
for the same customers. Each large firm will thus avoid significant price-cuttin
g, because price-cutting would be prejudicial to the common interest in a stable
demand for products. Most economists do not see price-fixing when it occurs bec
ause they expect it to be brought about by a number of explicit agreements among
large firms; it is not.
Moreover, those economists who argue that allowing the free market to operate wi
thout interference is the most efficient method of establishing prices have not
considered the economies of non-socialist countries other than the United states
. These economies employ intentional price-fixing, usually in an overt fashion.
Formal price-fixing by cartel and informal price-fixing by agreements covering t
he members of an industry are commonplace. Were there something peculiarly effic
ient about the free market and inefficient about price-fixing, the countries tha
t have avoided the first and used the second would have suffered drastically in
their economic development. There is no indication that they have.
Socialist industry also works within a framework of controlled prices. In the ea
rly 1970 s, the Soviet Union began to give firms and industries some of the flexib
ility in adjusting prices that a more informal evolution has accorded the capita
list system. Economists in the United States have hailed the change as a return
to the free market. But Soviet firms are no more subject to prices established b
y a free market over which they exercise little influence than are capitalist fi
rms; rather, Soviet firms have been given the power to fix prices.
1.
The primary purpose of the passage is to
(A) refute the theory that the free market plays a useful role in the developmen
t of industrialized societies
(B) suggest methods by which economists and members of the government of the Uni
ted States can recognize and combat price-fixing by large firms
(C) show that in industrialized societies price-fixing and the operation of the
free market are not only compatible but also mutually beneficial
(D) explain the various ways in which industrialized societies can fix prices in
order to stabilize the free market
(E) argue that price-fixing, in one form or another, is an inevitable part of an
d benefit to the economy of any industrialized society
2.
The passage provides information that would answer which of the followin
g questions about price-fixing?
I.
What are some of the ways in which prices can be fixed?
II.
For what products is price-fixing likely to be more profitable that the
operation of the free market?
III.
Is price-fixing more common in socialist industrialized societies or in
non-socialist industrialized societies?
(A) I only
(B) III only
(C) I and II only
(D) II and III only
(E) I, II, and III

3.
The author s attitude toward Most economists in the United States (line 1) ca
n best be described as
(A) spiteful and envious
(B) scornful and denunciatory
(C) critical and condescending
(D) ambivalent but deferential
(E) uncertain but interested
4.
It can be inferred from the author s argument that a price fixed by the se
ller seems pernicious (line 7) because
(A) people do not have confidence in large firms
(B) people do not expect the government to regulate prices
(C) most economists believe that consumers as a group should determine prices
(D) most economists associate fixed prices with communist and socialist economie
s
(E) most economists believe that no one group should determine prices
5.
The suggestion in the passage that price-fixing in industrialized societ
ies is normal arises from the author s statement that price-fixing is
(A) a profitable result of economic development
(B) an inevitable result of the industrial system
(C) the result of a number of carefully organized decisions
(D) a phenomenon common to industrialized and non-industrialized societies
(E) a phenomenon best achieved cooperatively by government and industry
6.
According to the author, price-fixing in non-socialist countries is ofte
n
(A) accidental but productive
(B) illegal but useful
(C) legal and innovative
(D) traditional and rigid
(E) intentional and widespread
7.
According to the author, what is the result of the Soviet Union s change i
n economic policy in the 1970 s?
(A) Soviet firms show greater profit.
(B) Soviet firms have less control over the free market.
(C) Soviet firms are able to adjust to technological advances.
(D) Soviet firms have some authority to fix prices.
(E) Soviet firms are more responsive to the free market.
8.
With which of the following statements regarding the behavior of large f
irms in industrialized societies would the author be most likely to agree?
(A) The directors of large firms will continue to anticipate the demand for prod
ucts.
(B) The directors of large firms are less interested in achieving a predictable
level of profit than in achieving a large profit.
(C) The directors of large firms will strive to reduce the costs of their produc
ts.
(D) Many directors of large firms believe that the government should establish t
he prices that will be charged for products.
(E) Many directors of large firms believe that the price charged for products is
likely to increase annually.
9.
In the passage, the author is primarily concerned with
(A) predicting the consequences of a practice
(B) criticizing a point of view
(C) calling attention to recent discoveries
(D) proposing a topic for research
(E) summarizing conflicting opinions